[GNC] Asset vs Equity accounts?

David Cousens davidcousens at bigpond.com
Sun Feb 14 19:04:33 EST 2021


gnuGord,

If you have ownership, possession and/or control of your house and car or
any other resource then they are assets. Bank accounts are also assets for
example. Your furniture, a boat, camper etc  are all assets.

If you have taken a loan out to buy them, the present value of that loan is
a liability, usually against that specific asset (e.g. mortgage) or your
assets in general,  i.e. you are obligated to pay it back with loss of the
asset or a considerable fraction of its value a likely penalty if you don't.
Any obligation you have to pay someone else some amount of money is a
liability.

Your equity in the house and car is the difference between their present
value as assets and the outstanding liabilities against those assets. In
most cases the cost of an asset is used to record its value as until you
have sold it you do not have a definite value to ascribe to it. 

It is possible to track market values (unrealized gains and losses) on
assets but it will be better to leave looking at this until you have the
basic accounting under control. Each jurisdiction has rules re reporting of
unrealized gains and losses and these can be quite variable).

The only entries you normally make to equity as Stephen said are when you
enter the opening balances of your assets and liabilities and if you close
the temporary equity (Income and Expenses) accounts to equity ( this is not
necessary in GnuCash but may be for external accounting procedural
purposes). 

The transactions to add the value of an existing asset is normally:
1. a debit to the asset account for the present value of the asset and 
2. a credit entry to the equity opening balances account (or an appropriate
subaccount of the opening balances for that specific asset if you require
that level of detail)

 and to add a liability 
1. a credit to the liability account recording the liability and 
2.a debit to the opening balances sub account of equity (or again a sub
account of that depending on the detail you require, i.e. if you need to
know the equity you have in specific assets.

These are the individual lines (or splits) of a single transaction. If you
select View->Auto Split Ledger from the menu then each transaction in a
register of an account will open up to display the individual lines/splits
composing it.

See https://code.gnucash.org/docs/C/gnucash-guide/chapter_basics.html for a
very basic  introduction to accounting. The Wikipedia articles on Double
Entry, debits and Credits and basic accounting are pretty good as well.
Otherwise a reasonably recent  second hand textbook on financial accounting
is a good investment for the basics.

David Cousens



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David Cousens
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